FTC Fines Adware Firm $3M

An online media and advertising company accused of unfairly and deceptively downloading its software onto consumers' computers has agreed to pay a $3 million fine to the Federal Trade Commission.

In a settlement with the FTC, Zango Inc. agreed to clearly notify consumers and seek their consent before installing its software, which critics call "adware," onto Web surfers' computers. The company said it would also make it easier for consumers to remove the software.

Computer privacy advocates hailed the settlement as a landmark agreement that defines what a company must do to obtain consent before installing software on a user's computer.

"This sends an important message to companies that have built their businesses on the backs of Internet users without any concern for what those users want," said Ari Schwartz, deputy director of the Center for Democracy and Technology.

The FTC charged that from 2002 to 2005 Zango distributed its adware through a large network of affiliate companies that promised free content, such as games, screensavers and Web browser upgrades. Zango's advertising software was then bundled with the free content and unknowingly downloaded by the user. The program would monitor the user's Internet surfing and offer pop-up ads based on sites the user visited, the FTC said.

Zango's third-party distributors also exploited gaps in online security systems to install the software without consumers' knowledge and made the program difficult to remove by disguising it, the FTC said. In all, Zango's program was installed on computers over 70 million times and caused more than 6.9 billion pop-up ads to appear, the FTC said in its complaint .

Zango, formerly known as 180solutions, blamed many of the deceptive practices cited by the FTC on its affiliates, which it said it no longer uses. Zango paid the affiliates to include its software with their free downloads, but said that it stopped working with the affiliates in October 2005.

Keith Smith, Zango's chief executive, said that in previous years "deceptive third parties" did not properly enforce "our consumer notice and consent policies."

"We deeply regret and apologize for the resulting negative impact," he said.

Zango said it has abided by the FTC's new notice-and-consent standards since Jan. 1, when it began using new software that can detect the unauthorized installation of its desktop advertising software on a consumer's computer.

Under the terms of the settlement, Zango is barred from serving pop-ups or otherwise contacting a consumer's computer if Zango's adware was installed on that computer prior to Jan. 1.

The FTC also prohibited the company from installing software without a consumer's express consent, which it defined as "clear and prominent disclosure" of the terms of the software installation, separate from any end-user license agreement and prior to "consumer activation of the download."

Both Schwartz and Steve Stratz, Zango's spokesman, said the FTC's definition sets a precedent for all companies that offer content for download, from instant-messaging software to toolbars to games.